EBIT…Huh? What the heck is that?
Say it out loud with me: Eeee – bit – dah.
One more time out loud.
EEEE – bit – daaaah.
Did your co-workers just look at you funny? Good.
EBITDA is short for Earnings Before Interest Taxes Depreciation and Amortization. It is a shortcut to estimate cash flow to the firm. It’s also one of the more common financial measurements used to value firms.
EBITDA approximates the cash the business is generating for all stakeholders (owners, investors, debt provides, etc.).
That is important for an investor to know. When someone invests in your business, they want to know what they are getting in return. EBITDA is a good way to measure that.